- Yesterday’s US CPI report for August came in broadly inline with market expectations with the headline rising 0.19% and core rising 0.28%. On a year-on-year basis that corresponds to 2.5% for headline and 3.2% for core. Ahead of the data release the market was still undecided over a 25bp or 50bp rate cut from the Fed at the September policy meeting – yesterday’s report does little to support the larger reduction and has tipped the balance towards a 25bp cut on September 18. The US dollar lost ground after the data release but soon recovered, with the dollar index dropping 0.1% after being down as much as 0.3% earlier in the session. The August PPI report and weekly jobless claims are on the docket this afternoon, however neither are likely to be game changers today.
- The single currency is steady this morning, hovering just above 1.10 as markets await the ECB policy meeting this afternoon. Policymakers are widely expected to deliver a 25bp rate reduction, so markets will be looking for signals of further easings following the meeting and press conference from President Christine Lagarde. Inflation has fallen towards the ECB target; however, officials remain wary of stubborn price pressures, particularly in the services sector. Nervousness over the rise in service sector inflation led the central bank to pause in July after cutting in June and has left officials unwilling to commit to a path of rate cuts. Madame Lagarde may offer some clues on where policy is headed in the coming months as market currently expect one more cut this year ahead of quarterly moves in 2025.
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